Becoming A Sole Proprietor In Illinois
1. Choose a business name for your sole proprietorship and check for availability.
- Please see our section on choosing and checking the availability of a name for your small business, as well as our section on the trademark law aspects of choosing a name.
2. Register the business name with local, state, and/or federal authorities.
- If you will be operating your sole proprietorship undera name that is different from your own name, then you will need toregister the name as a “fictitious” or “assumed” business name. InIllinois, you do this by applying for permission to use an “assumedname” with the county clerk’s office in the county where your principal place of business will be located.
- Although you are not required to do so, you shouldconsider registering your business name as a federal and/or statetrademark. Please see the Trademark for Business Naming section for details.
3. Obtain any required local licenses.
- Please see the general section for details.
4. Determine what tax and other regulatory obligations your soleproprietorship has, and take care of any necessary registrations.
- All new business owners must register for business taxes with the Illinois Department of Revenue. For details, see the the Tax Registration Page of the Illinois Business Portal.
5. Open a bank account for your business.
Set Up An Accounting System
Setting up an accounting system for your business is one of the most important things you can do for your company to ensure long-term success.There is just one problem youre not a numbers person.
Just thinking about financial statements, debits and credits, and accounting software makes your head hurt.
Staying on top of finances not only keeps the business out of trouble with the IRS, but it can be used to track and monitor trends in the business and maximize profits.
How Much Does It Cost To Start A Business In Illinois
The cost to start a business in Illinois is going to vary significantly depending on what the business does and where its located. Below is a list of the costs of some of the more common licenses and registrations a business will need:
Business Entity Formation $0 $175 Business License $0 $300
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Examine Your Tax Filing And Reporting Obligations
Any type of company is taxed in Illinois. Illinois has a corporate income tax, a business franchise tax, and a personal property substitution tax, among other things. Except for sole proprietorships, most companies would be subject to at least one of these three taxes. For more background on state business taxes in Illinois, see Illinois State Business Income Tax.
Sole proprietorships are businesses that are run by one person. As part of their personal state income tax returns, they pay state taxes on company income .
Partnerships. On their personal tax returns, partners pay state taxes on partnership revenue. Partnerships in Illinois are also required to file Form IL-1065, Partnership Replacement Tax Return.
LLCs are limited liability companies. In their personal tax returns, members pay state taxes on their share of LLC revenue. Furthermore, LLCs must file a separate state tax form, either a partnership return or a company return. The basic type used will be determined by the LLC’s federal tax classification. Illinois LLCs must also file an annual report with the Illinois Secretary of State.
Corporations are a type of company. Shareholders must pay state taxes on the corporation’s dividends. In his or her personal state tax return, a shareholder-employee with a salary must also pay state income tax. In addition, the company is subject to a variety of Illinois corporation taxes. Finally, businesses must file an annual report with the Illinois Secretary of State.
Acquire An Ein/tax Identification Number
If a business wishes to hire employees, you must acquire an employer identification number . This nine-digit number is issued through the IRS website and is required upon submission of reports like employees wages and business tax.
Although sole proprietors without employees have the option to use a social security number, we highly discourage you to use it in business transactions as they can be easily used to open a bank account.
Besides submitting employee records to the IRS, your business EIN is also needed when you pay all employment-related taxes through the Illinois Department of Employment Security.
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Hire A Registered Agent
Illinois requires you to appoint a registered agent to receive legal documents on behalf of your business. An agent can be an Illinois resident or a company authorized to do business in Illinois. The agent must have a street address in the state, known as the registered office.
You or one of your employees can act as a registered agent as long as you meet the requirements. LLCs and corporations are not legally able to act as their own registered agents in Illinois. You can also appoint a business to act on your behalf. You could spend as much as $300 or as little as $49 it usually comes down to the quality of service, so be sure to ask questions and read reviews.
Is An Llc Better Than A Sole Proprietorship
Choosing the business entity is a very difficult decision and we get a lot of questions about whether the sole proprietorship or Limited Liability Company is the best option. The benefits are different for each business owner, but here are a few things to consider when considering the two.
The sole proprietorship is a popular business entity and has advantages such as ease of setting up, fewer administrative requirements, and lower cost than the Limited Liability Company. The biggest downside of the sole proprietorship is that the owners personal finances and the finances of the business are tied together. This means if the business is sued or the business cant pay its debts, the owner is personally responsible.
The LLC is a legal entity that separates the assets of the business and its owners. If the business is sued, the owners are typically not personally liable. Another significant advantage of the LLC comes from its tax flexibility. Once the LLC is profitable enough, it can provide distributions to the owners which are taxed much less than the self-employment taxes of the sole proprietorship.
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What Is A Sole Proprietor
Much like a general partnership, the sole proprietorship is an informal business type, but the difference is that a sole proprietorship operates with only one owner, while a general partnership requires at least two.
There are very few legal requirements for owning a sole proprietorship, which is why we often say that its the easiest type of business to form. All you need to do to get a sole proprietorship up and running is to simply start working, as there is no formal formation process, and no paperwork to file with the state.
A sole proprietorship is an unincorporated business. In fact, from a legal standpoint, the business and its owner are one and the same taxes and lawsuits against a sole proprietorship are brought against the owner personally.
A sole proprietor is a relatively popular business type simply because its a good starting point. Its simple to create, the startup costs are almost nonexistent, and a sole proprietorship can be converted into another entity type later on.
Guru Tip: It’s important to understand that a sole proprietorship does not offer personal asset protection as the LLC does. The LLC is the most popular entity for small businesses and is easy to set up by doing it yourself or hiring a service.
Sole Proprietor Taxes In California
As a sole proprietor in California, youll pay state and federal income taxes as an individual. But its a little more complex than when youre an employee.
Youre responsible for the steps employers usually cover, including:
- Paying quarterly estimated taxes. Estimated taxes are due to both the California Franchise Tax Board and the IRS four times each year: April 15, June 15, September 15, and January 15. California requirements are different from federal for each deadline: April 15 , June 15 , September 15 , and January 15 .
- Owing the self-employment tax. Youll be responsible for the full Medicare and Social Security taxes that an employer would otherwise split with you. This amounts to 15.3% of your federal taxable income.
Report profit or loss from business. When you file income tax returns, youll have to fill a Schedule C along with your IRS Form 1040. Schedule C is where you report the money you earned and spent on your business for the tax year.
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Start With An Illinois Assumed Name Search
Illinois assumed names must be unique and must also meet Illinoiss business name requirements. First, visit the Illinois Secretary of State’s website and search for your new DBA name to make sure it isnt already in use.Next, review the Illinois naming requirements. In Illinois, assumed names should NOT include:
- Words that could confuse your business with a government agency
- Any word or phrase that indicates or implies that your company is in the business of a corporate fiduciary unless permitted by the Secretary of Financial and Professional Regulation.
- Any words that indicate the corporation is in the business of banking, insurance, or corporate fiduciary without authorization from the state Commissioner of Banks and Real Estate.
- Any word or phrase that is restricted by any other state statute
Learn more about Illinois naming guidelines by reading the state statute that covers professional corporation naming guidelines.
We recommend checking if your name is available as a web domain . You might not plan on starting a business website today, but you may want to prevent others from acquiring your URL.
Renew Your DBA with the StateYour Certificate of Assumed Name expires after five years. The fee to renew your assumed name is $150. A penalty of $100 will apply to any assumed name renewed on or after the first day of the company’s anniversary month.
Starting An Illinois Llc Is Easy
You can apply for an Illinois LLC online by registering the Articles of Organization with the Secretary of State. The cost to create an LLC in Illinois is $150.
You can file online or by mail. Follow our How to Start an LLC in Illinois guide below to get started.
For more information on how to form an LLC in any state, visit our How to Start an LLC guide.
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Select A Business Name
You have two options for a sole proprietorship business name. You can use your own personal name, which is the default option. Therefore, if your name is John Johnson, your business is also called John Johnson. Or, you can register a DBA and create an assumed business name for your sole proprietorship.
Just remember, either way, you will not have the exclusive rights to your business name unless you register your DBA in a state that provides exclusivity for these filings. This means that if another entrepreneur wants to use your name, theyre legally allowed to do so.
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When Are Payments Due
Taxes for self-employed individuals is based on the calendar tax year. As discussed earlier a new, first-year business can pay federal taxes at the end of the first year and then may have to pay taxes quarterly . Quarterly payments are due based on the 15th the month after a calendar quarter. For instance, the first quarter is January, February and March. Those taxes would be due on April 15th. The remaining quarters are due June 15, September 15 and January 15.
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Apply For Federal Licenses And Tax Treatment
Like the state of Illinois, the federal government doesnt require a nationwide, general business operating license.
But some types of businesses are regulated by one or more federal agencies, and those might require a federal license or permit. You might need a federal license if you operate in these areas:
- Radio and television broadcasting
- Transportation and logistics
Check out the federal agency in charge of the activities relevant to your business to find out which licenses you need to run your business.
You can find a list of all federally licensed activities, along with which agencies to go to for more information, through the U.S. Small Business Administration.
Does A Sole Proprietorship Provide Legal Protection
First off, we have to clear the air on what we mean by legal protection. Basically, a business with legal protection has personal asset protection as a result of whats known as the corporate veil, which separates the finances and assets of each owner from the assets of the business itself.
But in a sole proprietorship, there is no corporate veil, and as a result, no legal protection. In fact, in the eyes of the law, the sole proprietorship is indistinguishable from the owner there is no separation between the sole proprietorships business finances and the owners personal finances.
In our opinion, this is the biggest disadvantage of sole proprietorships. Its difficult to overstate how catastrophic even one liability claim against your business could be if you remain a sole proprietor instead of forming a formal business entity, like a limited liability company or a corporation. After all, if someone sues your sole proprietorship or you default on a debt, you as the owner are 100% liable. That means your creditors can pursue your house, car, personal bank accounts, investments, and more.
Canceling Or Changing Your Dba
For LLCs and corporations wishing to change a DBA, the fee is $25 cancellation is $5. If you registered a DBA with your county, youll need to file an amendment if the DBAs business address, nature of its business or owners change, or if you want to cancel the DBA. In Cook County, the fee for filing this form online or by mail is $25. Other counties may have their own forms and fees.
What Is The Minimum Capital Required To Start A Sole Proprietorship
This business does not require a minimum capital investment, and the proprietor has complete control over the business. Profits or income generated by your business are yours to keep. Sole proprietorships also prevent double taxation, as the firm is not taxed twice. Paying taxes and filing returns in your own name is the only way to file.
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Open A Bank Account For Your Business
Whatever type of business you start, you can open a separate business account to make tracking your income and expenses easier. If you own a limited-liability company, such as an LLC or a corporation, you must open a separate bank account to protect your assets.
Request a consultation with an Illinois Attorney. Call our office at 324-6666 or schedule a consultation with one of our experienced lawyers today. You can also fill out our confidential contact form and we will get back to you shortly.
How Much Should I Set Aside For Taxes As A Sole Proprietor
Asked by: Miss Meghan Effertz IV
According to John Hewitt, founder of Liberty Tax Service, the total amount you should set aside to cover both federal and state taxes should be 30-40% of what you earn. Land somewhere between the 30-40% mark and you should have enough saved to cover your small business taxes each quarter.
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File Your Chosen Business Name
Sole proprietors must register using their legal name or file an assumed business name. However, business owners need to make sure that the assumed name is available and not taken by other registered businesses.
In order to do so, sole proprietors can run a quick business name check in different public government databases such as the secretary of state, US Patent & Trademark Office, and local county clerks office.
If you decided to register an assumed business name instead of your personal name, our team would advise you to obtain a name certificate required by the state of Illinois. Filing an assumed name also will also entail a minimal processing fee of $5 to the county clerks office. You will need to register with the Illinois Department of Revenue Business Registration.
After you obtain the name certificate, the next step sole proprietors need to take is to publish the assumed business name in local newspapers within three consecutive weeks. And to complete thep process, you must also file the publishers certificate to the county clerk. The contact information of each county can be accessed in the Illinois Department of Health.
File A Dba In Illinois
If you want to do business under a different business name youll need to file for a DBA, or Doing Business As. Find out more about how to get a DBA, how it affects your business, taxes and more.
What is a DBA?
If the owners of a company want to do business using a name that is different from the original name used to form the business, they must register the secondary name. For sole proprietorships and partnerships the original name is the actual name of the owner or partners.
This secondary name doesnt replace the original name but acts as an additional, legal name for the business. This name is known by several terms such as trade name, fictitious business name and assumed name. The process for filing this name is often called filing for DBA registration, or doing business as.
For example, if Franks Hot Dogs LLC wants to do business as Best Hot Dogs in Town then the owners have to file a DBA.
When you need a DBA
Under Illinois law, all businesses are required to register alternative trade names by filing for a DBA if the business seeks to operate under a different name than the name used when it was formed. In the case of a sole proprietorship, any name different than the owners legal name requires registration.
Setting up a DBA in Illinois
The paperwork will ask:
What is the assumed business name on the DBA registration
The name and address of the business owner
The companys principal business address
Proof of notarization and publication, if required
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